Map of life expectancy at birth from Global Education Project.

Tuesday, January 31, 2006

Economics 102

For those, like the preznit, who never got past Economics 101. I'm not big on credentials, but it's relevant that for my interdisciplinary social science degree, I had to pass a qualifying exam in economics. What I mostly learned from my studies is that economics, whose practitioners give themselves a phony Nobel Prize every year*, is basically a vast edifice of bullshit erected on a foundation of sand. Economists like to claim that theirs is the "hardest" of the social sciences, whatever that means, but in fact it is not a science at all, but a version of theology. Economists begin with assumptions, that don't happen to correspond with reality, and argue from there. If reality doesn't match their predictions, they just ignore it.

To be fair, there is a new movement among mostly young economists to actually study the real world first and then try to come up with explanations based on, you know, data, and of course what they have mostly discovered is that the assumptions underlying economic theory are false. (Duhh.) But that hasn't stopped economics professors from teaching their students the same revealed scripture, in other words economics courses in our major universities are similar to biology courses at Bob Jones University. But, to be fair once again, the above is essentially what I wrote in my blue book and they passed me.

Anyhow, the proximate cause of the above rant is that tonight, he who shall not be named is expected to exhort Congress to make the tax cuts of the past five years permanent, and even to throw in a few new ones. He's fond of going around saying that tax cuts stimulate economic growth and make everybody richer -- "It's economics 101!" is his tag line. The idea, as he is fond of repeating, is that if we have more money in our pockets because that nasty liberal government didn't steal it, we'll spend it on stuff and people will make money manufacturing it and selling it to us, and then they'll give us jobs and we'll make even more money which we'll get to keep and spend, etc. etc.

There is a fundamental flaw with that analysis, which is that when government collects taxes, guess what it does with the money? It spends it! That's right -- those tax dollars go into the pockets of government workers and vendors, who spend it on stuff and people make money manufacturing it and . . . You get the idea. And the most important point is that government can spend the money on essential public goods that private sector won't provide or won't provide enough of, but which make us all richer and which are even essential to the success of private enterprise -- things like roads, bridges, airports, education, health care, law enforcement, worker retraining, basic scientific research, "translational research" to turn science into technology, environmental protection, etc. etc. etc.

In the real world, the one in which economists do not live, it turns out that there is no current or historic relationship between the overall rate of taxation and economic growth or social and material well-being among the world's industrialized countries. And in U.S. history, there is also no relationship between tax cuts and subsequent economic growth, job creation, or job quality. United for a Fair Economy reviews the evidence -- those stupid little facts.

The issue is not whether we pay taxes, but how our tax dollars are spent. The preznit may be on to something though -- I don't like paying taxes for the purposes to which he puts the money, such as invading countries that are no threat to us in order to steal their oil revenue and give it to the Vice President's company to divide approximately evenly between profits and waste. With our vast and growing budget and trade deficits, negative personal savings rate, deteriorating infrastructure, pretty soon we won't have to worry about stuff like jobs and taxes because we'll be flat broke.

* Bet you didn't know that there is, in fact, no Nobel Prize in economics. In the 1950s, economists got together and came up with their own prize, which they named the Nobel Memorial Prize, although Nobel was long dead. If sociologists were as rich as economists, we might do the same thing, but we aren't and anyway, knowledge is its own reward and we actually have some.